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Key inflation measure hits zero Key inflation measure hits zero
(20 minutes later)
A key measure of UK inflation has fallen to zero for the first time in 49 years, official figures show.A key measure of UK inflation has fallen to zero for the first time in 49 years, official figures show.
The Retail Prices Index (RPI), which includes housing costs, fell to 0% in February from 0.1% in January - the lowest reading since March 1960. The Retail Prices Index (RPI), which includes housing costs, fell to 0% in February on an annual basis from 0.1% in January.
There are concerns that if prices keep falling, this could lead to a prolonged period of deflation.There are concerns that if prices keep falling, this could lead to a prolonged period of deflation.
Meanwhile the Consumer Prices Index (CPI), which is used in economic policy, rose unexpectedly to 3.2%. The Consumer Prices Index (CPI), which is used in economic policy, rose unexpectedly from 3% to 3.2%.
The fall in RPI, as seen by the latest Office for National Statistics data, stems largely from the fall in mortgage repayments after a series of interest rate cuts. The increase now means Bank of England head Mervyn King will have to write to Chancellor Alistair Darling, to explain why inflation is more than one percentage point above the government's own 2% target.
The Bank of England uses the index of consumer prices (CPI) to set interest rates. According to the BBC's Hugh Pym, the latest CPI figures might suggest the situation on the High Street is not as weak as previously thought.
But the government uses the broader measure of RPI to set the level of state pensions, welfare benefits and index-linked government bonds. The fall in RPI, as recorded in the latest Office for National Statistics data, stems largely from the fall in mortgage repayments after a series of interest rate cuts.
'Big picture'
The Bank of England uses the CPI, the index of consumer prices, to set interest rates.
But the government uses the broader measure of RPI, the index of retail prices, to set the level of state pensions, welfare benefits and index-linked government bonds.
While analysts had expected the RPI to fall below zero, it was still the weakest reading since 1960.
"The big picture remains that deflation is on its way," according to Vicky Redwood of Capital Economics.
"After all, at zero in February, the RPI measure was as close to deflation as you can get.
"Falling utility and food price inflation should still push CPI into negative territory before long.
"Indeed, we continue to think that the opening up of a large amount of spare capacity in the economy risks a broader and more persistent period of falling prices."